OBJECTIVE The stem cell fraction of mesenchymal stromal cells (MSCs) is capable of self-renewal and under inductive conditions differentiates into bone, cartilage, hematopoietic stroma, and other mesenchymal tissues. Therefore, MSCs represent a promising source for hard tissue repair therapies. MSCs are also immunosuppressive and prevent activation of allogeneic lymphocytes in vitro. Thus it has been suggested that they might be able to engraft in allogeneic recipients and downregulate recipients' immunity. In this study we examined whether MSCs retain their immunomodulating properties in vivo after allotransplantation. MATERIALS AND METHODS MSCs were propagated from bone marrow (BM), placenta, or umbilical cord tissues. Using a murine parental-into-F1 model of graft-vs-host disease (GVHD) we tried to control GVHD by intravenous transplanting parental or recipient MSCs together with parental lymphocytes (day 0) and on days +7 and +14. MSCs' immunosuppressive potential in vivo was also examined by comparing their ability to construct ectopic bone after local transplantation with osteogenic inductor (demineralized bone matrix) under the kidney capsule of syngeneic and allogeneic recipients. RESULTS Repeated IV MSC injections failed to reduce GVHD-related recipient mortality. Local implantation of MSCs propagated from BM, placenta or umbilical cord resulted in ectopic bone formation in syngeneic recipients and in transplant rejection by allogeneic mice. CONCLUSION MSCs lose their immunosuppressive potential in mismatched setting.